Energybuild Share Discussion Threads

[slapdash] 03/8/2009 12:55

very irresponsible of tipsters to tip this.... so illiqued they can always claim it has gone up after tipped.... it has been tipped by a sister publication all owned by T1ps.... hmmmm slap

[lasata] 03/8/2009 09:01

Buy Energybuild (EBG) at 18.5p

Says James Faulkner of specialist small cap website WatsHot.com

Apart from sheep, singers and my Grandad, Wales is also famous for exporting coal. Coal miner Energybuild is on the cusp of a steep ramp up in production that should see profits increase by a factor of more than 20 over the next three years. In a technical report compiled for Western Canadian Coal following its takeover of Cambrian Mining (majority shareholder in Energybuild), Wardell Armstrong placed a net present value of £88.6 million on Energybuild's Aberpergwm mine, or around 3 times the current market capitalisation of the company. Management have delivered on promises so far and there is no reason to suggest they shouldn't continue to do so. Buy, at 18.5p.

In The Valleys
Energybuild is a producer of anthracite and lower grade coal from its underground and surface operations near Neath in the coalfields of South Wales. In late 2007, the company began to execute a new mine plan at the Aberpergwm drift mine, which should see production increase from around 20,000 tonnes in 2007 to 750,000 tonnes in 2012. By lucky chance, Aberpergwm is situated near the local power station, RWE's Aberthaw facility, a perfect customer for Energybuild's coal. The anthracite produced at Aberpergwm is of very high quality and has minimal sulphur content so it commands a substantial premium to international prices. The firm sells around 25% of its output as sized products through a long-term contract with distributor Evans and Reid, from whom it receives prices in excess of £100 per tonne. Energybuild is also due to start producing sandstone from its surface operations, and while this is relatively low margin it does mean that the firm is generating revenues from what would otherwise be a waste product. Finally, the firm recently began production from a small coal tip recovery joint venture.





Aberpergwm
Energybuild plans to accelerate its capital expenditure programme over the next three years to bring full scale production as soon as possible, potentially by the end of FY2011. While boosting revenues, increasing production should also raise margins. As output increases, operating costs should fall from their current level of around £70 per tonne to around £40 per tonne. To reach its goal in the allotted time, Energybuild expects to spend nearly £28 million in the development of the Aberpergwm mine and associated infrastructure between FY2009 and FY2012.

44 million tonnes of recoverable resource has already been outlined, against an initial mine plan of 20 million tonnes. This offers a clear opportunity for Energybuild to either increase the mine life or the production rate. It also means that there is plenty of flexibility in the production plan, should the company encounter difficulties in certain areas. The only downside is that with minimal cash on the balance sheet, the company will require financing to see through its expansion programme. However, I can't see that being much of a problem given the attractive nature of the project.

Coal tip recovery JV
The company moved into first production at its coal tip recovery JV with Coal Recovery Investments Ltd (CRI) in 2009. Planning permission for development work from the first site near Ebbw Vale was received last September and site preparation was completed during the fourth quarter of 2008. The tip contains just under 250,000 tonnes of coal, which is expected to yield over 200,000 tonnes during the lifetime of the project. Production commenced in March 2009 and production totalled 40,000 tonnes at the end of June. Coal recovered from the tip is blended with coal from Energybuild's other operations and dispatched under existing contracts. Capital expenditure for the project is just over £900,000 with both partners sharing costs on a 50:50 basis.

Surface Mining
The firm has surface rights covering 2,428 hectares and it currently operates the Nant y Mynydd and Forest surface coal and stone mining areas on the hills above the Aberpergwm mine. Total reserves at Nant y Myndd were estimated in 2007 at 359,750 tonnes, of which 175,000 tonnes were proven and 104,750 tonnes were probable. Meanwhile, the Forest area is reckoned to contain around 150,000 tonnes. Further possible opencast sites within the Surface Lease have been identified for potential development, but planning permission delays have impacted production towards the end of the year just ended (June). The firm understands that the planning application will be heard by the local authorities in August 2009. Surface Mines contributed 65,000 tonnes to production in the year to June 2009.

Additionally, around 3 million tonnes of sandstone overlie the coal seams and Energybuild currently has approval to extract 800,000t as an aggregate product. While being of relatively importance to income, these activities benefit the economic of future coal recovery.


Financials
During the year to 30 June 2009 the company increased total production by 115% to 239,000 tonnes, which brought in revenues of £16 million, up 149% on the year before. Pre-tax profits jumped 75% to £2.2 million. The cash balance declined from £3.4 million to £0.5 million as the firm committed £7 million to capital expenditure to develop its underground operations. Although it is now clear that further financing will be required - for both the underground machinery and for the coal handling infrastructure required to process and distribute the planned increase in production – it is likely that such an event would be a positive catalyst for the shares.

Valuation
Energybuild looks undervalued whatever kind of valuation metric is applied. Pre-tax profits of £2.9 million are anticipated for 2010 - and should rise steeply thereafter - which puts the shares on a current rating of around 9.5 (tax losses and capex mean that no tax charge is expected until 2011 at the very earliest). In terms of recent mining transactions, the shares look undervalued on both a production and a reserve/resource basis. Taking into account recent transactions, Seymour Pierce suggests a valuation of £41.6 million (32p per share) based on the firm's long term output target and £92.2 million (70.7p per share) based on its resource/reserve base. Bottom line is that Energybuild should be throwing off operating cashflow of around £26 million on average coal prices of £75 per tonne (remember, EBG gets higher prices for its high quality coal and its sized products). Coal prices can be volatile but they're already pretty bombed out and once the global economy gets going again China will be hoovering the stuff up like there's no tomorrow. BUY.

Key Data
EPIC: EBG

[pugugly] 02/8/2009 14:47

Slap:- Nice posts. Being tipped again:-

Energybuild (EBG) at 18.5p Says James Faulkner of specialist small cap website WatsHot.com

However your comment re management gives me reason to do more detailed checking.

[lasata] 24/7/2009 13:55

good to see the buyers back in town on this little Welsh gem. The dip has shown its true colours

[septimus quaid] 24/7/2009 10:15

The spike on the top left hand graph relating to just prior to July 09 looks like the one fingered salute!

Any chartist out there?

Otherwise we seem to be on the up again.

[lasata] 23/7/2009 15:56

Slap: Take a look at their parent company and you will see there is little danger here

[slapdash] 23/7/2009 15:26

Lasta - companies that massively exagerate and don't deliver should be avoided full stop..... just my view...

Who's to say 2011's earning's prediction will materialise???? Do you trust the CEO here??? Last business went under as I recall in the 90's.....

Slap

[lasata] 23/7/2009 15:07

WTN - the parent company in fine form today.......up 25%

[pbracken] 23/7/2009 12:21

I picked up a ton a 15.65p today. I thinks slaps comments are valid but too pessimistic (in the longer term). SEYP has a revised EPS of 11p in 2011, factoring in an issue of £8m worth of shares, which will be mopped up by WTN and others. EBG remains a nice little earner and, once the production issues are out of the way, should motor on nicely. I'll be adding should the weakness return.

EDIT: FTO's recent weakness is another buying op in my book. Compelling exposure to China's gas market, and coalbed methane projects virtually given away on current valuation. Worth a look.

[lasata] 23/7/2009 12:08

Good underlying support here today - i imagine WTN (who are doing well with resurgent world coal demand) have plans for their Welsh minnow.....perhaps takeover like they did with CBM?

Slap: you seem to view the world from a glass half empty perspective

[slapdash] 22/7/2009 16:45

down she goes... Slapmeister called this right... will be a year or more before this starts to make progress... Slap

[marvelman] 21/7/2009 19:39

I have to say Slap that your analysis of this and other companies I have seen you post on has been right on the money and has often made me think twice. I can't see anything in your post 481 that can be argued against. I can only see public and political resistance with coal produce and although we do need it for now it will certainly not have an easy future.You did well to heed your own comments and perhaps others would have done well to as well.Regards.

[septimus quaid] 21/7/2009 19:26

Slap,

You come across as a person with an axe to grind, any particular reason?

[pbracken] 21/7/2009 11:28

Analyst reaction (SEYP) to recent update:

Synopsis: The production numbers and financials in yesterday's trading statement from Energybuild were an unpleasant surprise with the performance over the second half of the year, and in particular the last quarter, very weak. Fortunately, the issues behind the shortfalls can be resolved and we retain our positive recommendation. However, we now adopt a much more conservative approach to our FY10 forecasts. BUY. Price target 42p.

[talkinghead] 15/7/2009 16:14

Still early days I think, production is still increasing steadily form the drift operation, cash generation will improve once costly process of completing infrastructure is complete.

I think the potential effect of foreign imports is an interesting one. The biggest importer of coal to Europe, as I understand it, is China, which is increasingly using its reserves to satisfy internal demands.

Also, Oil price has been volatile of late but we'll see what effect a continued recovery could have on shipping costs.

Coal price has come off but still way above levels at the Company's listing I believe.

Again, as I say. interesting stuff. See what happens I guess!

[slapdash] 15/7/2009 15:40

sure but other key points... lack of cash generation... need for financing.. was supposed to be self-financing...

I am now not sure if this venture will even be profitable given falling coal prices.....

Slap

[talkinghead] 15/7/2009 15:37

Bit harsh Slap. don't think its particularly controversial to invest in underground mining operations when your primary asset is an underground mine.

Coal price "softening" wil effect the retail and domestic heating market, which I believe accounts for a significant proportion of EBG sales, rather than fixed price contracts with power stations.

Sales short but accountable to delays in planning permission at opencast sites, nothing to suggest this won't be granted in line with previous precedents.

Agree, not the best figures but by no means the worst I've seen in this sector, given the circumstances.

[investinggarden] 15/7/2009 10:35

Production drive at Energybuild

News article from Growth Company Investor

[lasata] 14/7/2009 13:35

Good idea.